Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cognizant (CTSH)
Buy: Healthy Financial Services Demand Supports "Buy" View
Positive outlook for Financial Services business — CTSH indicated that its
outlook for the Financial Services segment (~41% of revs) was healthy, with
strong demand for Insurance (see next bullet), good trends in retail banking
(driven by channel partnerships) and steady investment bank spending (seemed
driven mostly by wallet share gains with a 4Q11 offset).
Several drivers to Insurance client demand — Approx 1/3rd of CTSH’s
Financial Services revenues (~14% of overall revenues) are from the insurance
vertical (life, annuities, retirement, and P&C). In 2011, this business grew faster
than total Financial Services growth of ~30% y/y and continues to track well in
2012. Insurance growth is being driven by Package Implementations, Remote
Infrastructure and BPO – the latter has made significant progress over the last
two years, as CTSH saw a significant uptick in outsourced policy administration,
claims work and incremental underwriting. Other growth areas include complex
life/annuity projects around technology to provide retail advice at the POS, and
work with portals as clients incrementally utilize a B2C model rather than just
selling through agents/brokers. On a regional basis 5% of insurance revs come
from Asia-Pac (significant growth), 20% from Europe (no meaningful slowdown)
and 75% from US clients (steady-to-strong).
Overcoming 4Q11 Europe weakness — 4Q11 Europe weakness can be largely
explained by F/X and some client specific actions (change in onsite-offshore
ratio). There was also a slowdown in development projects (hurts right away) with
the transition to more maintenance work likely to help future quarters. CTSH
indicated that it won 14 logos in Europe in 4Q11 and is ramping a few large deals
currently (e.g., Volvo has been announced). This bodes well for 2012. Finally the
T-Systems partnership continues to yield generally good results.
Consulting / Domain expertise a key for future — Clients expect IT consulting
services in addition to delivery and CTSH investments are yielding results as
Consulting continues to grow faster than other lines – it is not dilutive to margins.
2012 guidance assumptions — 2012 revs growth guidance of “at least” 23%
y/y and EPS of “at least” $3.43 is based on several factors (1) customer
retention/ loyalty is high – helps wallet share; (2) investing in creating new
capabilities; (3) focus on healthcare (ICD-10) and financial services regulations
opportunities; (4) retail segment cost cutting initiatives and investments in
technology solutions for new channels and CRM; (5) consulting capabilities help
to gain mind share – there is a lot of focus on management consulting and
domain knowledge; and (6) Global expansion – Europe and APAC. Guidance
does assume macro volatility and some European weakness as well.
Reiterate Buy rating on CTSH and $88 target price — With the 2012 guidance
debate behind us, investors should now focus on CTSH’s underlying
fundamentals, which are quite strong. Although 1Q12 has started slowly, ramps
of signed contracts, continued market/wallet share gain and multiple areas of
robust client demand should lead to sequential revenue acceleration over the
next couple of quarters. This sets up CTSH well from an expectations standpoint
vis-à-vis its initial 2012 guidance. The stock currently trades at a 2012E P/E of
around 20X and 18X on a cash adjusted basis, which we view attractive given
our expectation of 20%+ EPS growth over the next three years.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cognizant (CTSH)
Buy: Healthy Financial Services Demand Supports "Buy" View
Positive outlook for Financial Services business — CTSH indicated that its
outlook for the Financial Services segment (~41% of revs) was healthy, with
strong demand for Insurance (see next bullet), good trends in retail banking
(driven by channel partnerships) and steady investment bank spending (seemed
driven mostly by wallet share gains with a 4Q11 offset).
Several drivers to Insurance client demand — Approx 1/3rd of CTSH’s
Financial Services revenues (~14% of overall revenues) are from the insurance
vertical (life, annuities, retirement, and P&C). In 2011, this business grew faster
than total Financial Services growth of ~30% y/y and continues to track well in
2012. Insurance growth is being driven by Package Implementations, Remote
Infrastructure and BPO – the latter has made significant progress over the last
two years, as CTSH saw a significant uptick in outsourced policy administration,
claims work and incremental underwriting. Other growth areas include complex
life/annuity projects around technology to provide retail advice at the POS, and
work with portals as clients incrementally utilize a B2C model rather than just
selling through agents/brokers. On a regional basis 5% of insurance revs come
from Asia-Pac (significant growth), 20% from Europe (no meaningful slowdown)
and 75% from US clients (steady-to-strong).
Overcoming 4Q11 Europe weakness — 4Q11 Europe weakness can be largely
explained by F/X and some client specific actions (change in onsite-offshore
ratio). There was also a slowdown in development projects (hurts right away) with
the transition to more maintenance work likely to help future quarters. CTSH
indicated that it won 14 logos in Europe in 4Q11 and is ramping a few large deals
currently (e.g., Volvo has been announced). This bodes well for 2012. Finally the
T-Systems partnership continues to yield generally good results.
Consulting / Domain expertise a key for future — Clients expect IT consulting
services in addition to delivery and CTSH investments are yielding results as
Consulting continues to grow faster than other lines – it is not dilutive to margins.
2012 guidance assumptions — 2012 revs growth guidance of “at least” 23%
y/y and EPS of “at least” $3.43 is based on several factors (1) customer
retention/ loyalty is high – helps wallet share; (2) investing in creating new
capabilities; (3) focus on healthcare (ICD-10) and financial services regulations
opportunities; (4) retail segment cost cutting initiatives and investments in
technology solutions for new channels and CRM; (5) consulting capabilities help
to gain mind share – there is a lot of focus on management consulting and
domain knowledge; and (6) Global expansion – Europe and APAC. Guidance
does assume macro volatility and some European weakness as well.
Reiterate Buy rating on CTSH and $88 target price — With the 2012 guidance
debate behind us, investors should now focus on CTSH’s underlying
fundamentals, which are quite strong. Although 1Q12 has started slowly, ramps
of signed contracts, continued market/wallet share gain and multiple areas of
robust client demand should lead to sequential revenue acceleration over the
next couple of quarters. This sets up CTSH well from an expectations standpoint
vis-à-vis its initial 2012 guidance. The stock currently trades at a 2012E P/E of
around 20X and 18X on a cash adjusted basis, which we view attractive given
our expectation of 20%+ EPS growth over the next three years.
No comments:
Post a Comment